Tory government 'should reform VAT system'

The Charities' Tax Reform Group is calling for the Conservatives to commit themselves to reforming the VAT system for charities if they come to power.

It also wants the party to boost charitable giving by introducing charitable remainder trusts, which allow people to gain a tax break now by pledging a future gift to charity.

The calls come in the group’s response to Denying the Vulnerable a Second Chance, an interim report published last week by the third sector working group of the Conservatives’ Social Justice Policy Group. The report acknowledges the problem of irrecoverable VAT and says VAT on fundraising is “in need of reform”.

Helen Donoghue, director of the CTRG, said: “We are very pleased that the group recognises the financial burden of charities’ irrecoverable VAT, which costs UK charities between £400m and £500m each year.

“We are campaigning for a VAT refund scheme for charities. We welcome the recognition that this campaign has strong cross-party support in Parliament.”

The Conservative report said that charities are treated for VAT purposes as if they are the final consumers when the final consumers are in fact their beneficiaries. It stated: “Most of the services provided by the third sector are either exempt from VAT, meaning they cannot recover money paid out in tax, or they are services that the group cannot charge for.

Either way, charities are unable to recover the VAT they are forced to spend in providing their service to the public.”

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